Cooler heads

Donald Trump’s election as president shook the markets at first. Here’s why the business outlook may not be so tense.

Simon Constable is a former anchor for The Wall Street Journal and regular Korn Ferry contributor.

On the great day after, Japanese investors reacted dramatically to news that Donald Trump defeated Hillary Clinton in the race for the White House, sending the Nikkei down more than 5% Wednesday morning. But that had little to do with the president-elect himself—the investors just weren’t expecting the result.

A Clinton win was baked into stock prices; her policies are well-known and fairly detailed. Trump’s less so. “If one thing is certain, it is that the markets do not like uncertainty,” Janney Capital Markets said in a research report Wednesday morning. That uncertainty is what spooked investors, initially.

As each day passes, though, conciliation in Washington, DC, is likely to ease the minds of investors globally, and the key component of certainty will settle in. Here’s an economic overview of a world according to Trump:


That said, Wednesday morning brought forth at least one dire prediction. One Nobel laureate forecast a global recession. Calmer heads don’t see it. “Our leading indicators didn’t show any signs of an imminent slowdown a week ago, and they aren’t showing that now,” said Lakshman Achuthan, co-founder of the Manhattan-based Economic Cycle Research Institute. ECRI has a stellar record in these matters. Of course a recession could happen in the future, but right now there’s no impending disaster.


“Trump has made it clear he wants to cut personal and business taxes,” writes Jack Ablin, chief investment officer at BMO Private Bank. The good news is that “both GOP House Speaker Paul Ryan and Trump certainly have a better shot at compromise than President Obama had with former [Republican] Speaker John Boehner.” There may need to be some wrangling. But the outcome could leave consumers better off, perhaps able to spend more on discretionary products and services. Likewise, corporate tax reform is possible. That could help spur business investment in capital goods equipment.


If nothing else, Trump is a builder. Expect infrastructure spending to rise for the country’s aging roads, bridges, and tunnels. Janney highlights Trump’s 10-year, almost $1 trillion plan that would involve a public-private partnership. Depending on how well this plays out, businesses in materials, earthmoving equipment, and engineering stand to benefit.

Health care.

Trump has said he wants to repeal the Affordable Care Act (aka Obamacare). Besides eliminating the individual mandate, which requires Americans to have insurance, he has said he wants to allow interstate competition between insurance providers. That may mean margins get further squeezed for health care companies. Trump would require health insurers to cover preexisting conditions. The current president’s signature legislation has become unpopular, especially given that the average insurance premiums at government-run exchanges are expected to rise substantially into 2017.


Here’s where things get unclear. “Trump has been an outspoken critic of ‘unfair’ trade deals with China, Mexico, and other trading partners as a source of middle-class job losses,” writes Ablin. The president-elect also isn’t keen on the Trans-Pacific Partnership. That has many worrying that he will start a global trade war. The last time the world had a major squabble of this type was the 1930s, and it led to the Great Depression. No one wants that, including Trump’s advisors.

It might be more helpful to focus on two things. One is that Trump is focused on fair trade—not free trade. In short, he wants a better deal for America. The second, but no less important, is that he is a deal maker at heart. His comments about China and other countries may be a gambit designed to bring concessions. It will be important for businesses to see how this plays out. Until it does get clarified, expect the uncertainty to weigh on Chinese, Mexican, and other markets.

Borrowing costs.

The Federal Reserve will likely remain cautious on raising the short-term cost of borrowing, perhaps even more cautious than it would have been in the event of a Clinton win. That said, the longer-term cost of borrowing as determined by the 10-year Treasury looks set to increase. Peter Tchir, managing director at Brean Capital, sees the government’s borrowing cost (as determined by the 10-year T-note) rising to as high as 2.25% versus its current 2.05%. That borrowing cost will quickly filter through to higher corporate debt costs.

And then there’s …

Expect financial institutions to prosper with Trump's laissez-faire approach to bank regulation. Likewise, traditional energy companies will probably benefit from his desire to see the US energy independent, although increased oil production may somewhat offset that gain through depressed prices. Expect a boost to defense spending too, as Trump is expected to wage harsher war on the Islamic State.